Managers that understand Validation vs. Verification are more likely to lead and benefit from AI adoption to generate rapid and safer client cashflows.
Given today’s pace of change, it’s crucial to keep up with emerging technologies, especially in the realm of AI and automated modelling. Team labour required to put deals together is at the heart of market activity throughout the year – and AI is driving game-changing productivity. It is a veritable sea change since the team at Dashflow presented AI opportunities to clients 5 years ago.
However, there’s a natural apprehension that often clouds our judgment – a fear of the unknown, particularly concerning the reliability and accuracy of AI-driven spreadsheet models for client investment cashflows. This is where a key distinction comes into play: the difference between validation and verification.
Verification: your ‘spellchecker’ to ensure AI models work as intended
Think of Verification as akin to your everyday spellchecker in Word documents. AI verification ‘spellchecks’ if a model is written with the correct formulae. Think of it as asking, “Are we building the model right?” Verification ensures that the monthly, quarterly and annual calcs make sense. That they are free from basic technical glitches, #NUM! warnings or basic computational errors. It’s about ensuring the model is a well-oiled machine and runs smoothly for your convenience without wasting higher-value Analyst time.
Validation: ensuring a model is appropriate for the scenario
Validation, on the other hand, is like proof reading your document for content accuracy and relevance. It’s about making sure that the model is the right one for your specific business scenario. This means asking, “Are we building the right model?” In the context of commercial real estate, validation involves ensuring that the business plan inputs – like market growth rates, rent roll assumptions, ERVs psf, CAPEX costs, &tc – are realistic and pertinent to the current market conditions.
The synergy of AI and Human Expertise
The fear surrounding AI in commercial real estate often stems from a misunderstanding of the above two concepts. AI models, when properly verified, are incredible at managing complex calculations and data analysis, tasks that are time-consuming and easily prone to hourly human error. However, the validation of the inputs, the nuanced understanding of the market and releasing trends, still rests firmly in the hands of seasoned real estate professionals.
Best-in-class managers appreciate that validation has little to do with advanced Excel modelling analyst skills. Team success and real estate company growth depends on strengthening (and hiring) property professionals who ‘speak and breathe the real estate business’. This means Professionals who can validate cashflow input assumptions, and stand to benefit from AI which automatically and instantly verifies the underlying model – often involving thousands of formulae.
Embracing AI Without Losing the Human Touch
By appreciating the distinction between validation and verification, we can leverage AI to enhance our capabilities, not replace them. AI models can be verified for accuracy and efficiency, while the inputs – the core of business planning in real estate – can be validated by professionals as usual. This synergy allows for more accurate, efficient, and reliable cash flow modelling, leading to better-informed decision-making.
The urgency of adaptation
In a market where temperatures are often high and competition is fierce, the integration of AI in spreadsheet modelling is not just an option; it’s a necessity to stay ahead and provide competitive service. It’s time to shed over-estimated fears and embrace the potential of AI, all while retaining our invaluable human expertise in validation. The future of successful commercial real estate professionals hinges on this crucial partnership and clarity about what AI actually achieves.
It is also inescapable. Microsoft Co-pilot integrating directly into everyone’s desktops and mobile phones in recent weeks is just one example of the unstoppable march forwards of progress. AI doesn’t replace people. But people who don’t use AI do get replaced by people who adopt far smarter approaches.
Conclusion: striking the right balance
Understanding the difference between validation and verification dispels misconceptions about AI and automated modelling in commercial real estate. By embracing this knowledge, we can enhance our analytical capabilities, reduce the risk of errors, and make more informed decisions efficiently.
It’s a blend of the best of both worlds – the precision of AI and the insight of human experience. Let’s step into this future with confidence and a clear understanding of our roles in this evolving landscape.